The sponsoring Arizona legislators say it’s a way to simplify the state’s complex sales tax laws.

The cities and towns in the state say changes in how construction is taxed is another ripoff of money from them, continuing the pattern set by the Legislature over the past few years.

Casa Grande, for example if the law were now in effect, would be hit for an estimated $1.5 million by the state denying it the ability to charge that tax when a home or commercial or other structure is built.

The task force appointed by the governor came up with 10 proposals for simplification. Seven had general agreement, but three were contested by cities and towns.

It was thought that when House Bill 3657 was introduced, the three contested sections would be held back until resolved.

However, Rep. Debbie Lesko, a Glendale Republican, included them when she introduced the bill, which is cosponsored by area legislators Frank Pratt, a Casa Grande Republican, and T.J. Shope, a Republican from Coolidge.

In short, the three disputed sections call for barring the cities from doing sales tax audits to check compliance, putting the state in charge of collecting all sales taxes and barring cities and towns from collecting construction sales tax, instead letting the state charge it at point of purchase instead of where built.

Senior Management Analyst Ben Bitter outlined the arguments during Monday night’s City Council meeting when a resolution in opposition was unanimously approved.

“Those three issues come down to state administration, effectively meaning that the state is the one to be in charge of all audits,” he said.

“And that really would increase the size of government at the state level in order to adopt some of those tasks.

“They’d be in charge of collecting all sales tax collections throughout the state. Right now, I believe there are 18 cities that collect their own sales tax, and they would be prohibited from doing such under this bill. We are not one of those self-collecting cities, so in that sense it wouldn’t necessarily affect us.”

(Casa Grande has its sales taxes collected by the state, which eventually sends the money back to the city.)

“But certainly on the back end, the state government either expands, or if it doesn’t expand enough we would be affected on that side because the processes would likely take longer (to get sales tax sent back),” Bitter said.

The second point of contention was audits.

“There would be a single state point of audit, which would eliminate the ability for any city to conduct an audit of a business that is in that city to make sure that the sales tax figures that they were reporting were accurate and whole,” Bitter said.

And the construction sales tax issue.

“That was probably the most damaging to us,” Bitter continued. “Obviously, that is a $1.5 million hit for us this year (if it were now in effect). Going down the road and we continue to grow it could be much larger.”

As it stands now, the bill would take effect in 2015, although what the final version will look like is anyone’s guess.

Amendments are still talked about, but Bitter said the one so far adopted doesn’t help Casa Grande in retaining the construction sales tax, “which is so vital to pay for some services for new commercial growth and residential growth that occurs within the community.”

Councilman Matt Herman pointed out that of the $2.65 million approved Monday night for street upgrades and renovations, $570,000 came from construction sales tax, “because that’s what it’s for, is for paying for new roads or maintaining what we already have due to the extra traffic.”

Herman said he had spoken with some state representatives about the issue and was told that the situation is like a runaway train.

“Which is unfortunate,” Herman said, “because they have the power as representatives to rein this in and help out the cities. That’s truly where the tax needs to be, especially cities like Casa Grande that are going to lose out on any of that construction sales tax” because many large builders buy in large quantities elsewhere and would be taxed there.”

Mayor Bob Jackson pointed out that much of the materials for major residential and commercial construction are not available in Casa Grande. That’s why the city has charged construction sales tax on the final project.

Herman added that, “I think on the other hand, it’s going to drive even more business out of state, because if you’re a big contractor and you’re buying truckloads of trusses, I mean why not get them in Nevada and just drive them across the line because transportation’s a lot cheaper?”

Bitter said that state law requires that when purchases are made out of state, the buyer is required to pay a use tax when the material is brought into Arizona.
However, he added, “even if they were to pay the use tax, which we all know is probably not very well collected, that does not come back to us in Casa Grande as state-shared revenue.”

Jackson asked if one of the provisions in the proposed bill would require making up any deficiencies to cities, than added, “I say that tongue in cheek.”

Bitter said some amendments being talked about aim to do that, but added that, “I think where we really need to go on the construction sales is if they’re intent on calling it a simplification by amending the construction sales tax, then there at least needs to be a study on that and they need to look at the true impact that would have on municipalities and on the ways we do business.”

Jackson said, “It’s pretty interesting to me that there’s 88 cities or 90 cities now in Arizona and every one of them is opposed to that provision.”
Those cities probably represent about 90 percent of the state population, he said, “yet the state Legislature is convinced that it’s good to get rid of that construction sales tax.”

Councilman Dick Powell said this is a good opportunity for the city to start engaging with legislators on issues that affect Casa Grande.
He noted that Jackson has already testified on the issue.

“I think when something’s important enough to send a message that the cities are resolving that they’re opposed to this, then the ones that represent us hopefully would pay attention to it,” Powell said.

“And I think we’re going to be looking probably, if history continues as it is now, at more of those types of issues that we need to take a stand on and pass along.”